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Today, the MPC voted to leave their rates unchanged and in addition held QE at £200 billion. The improved PMI data yesterday and the up tick in the revised Q4 GDP to 0.3% helped to reinforce this stance. Personally, I would be very surprised to see any change in monetary policy before the general election on rates or QE. However we have been surprised in the past by the BoE and we could be again; today the markets will be looking for any subtle changes in tome and sentiment on future monetary policy projections in the statement. The minutes in two weeks time will probably help to shed more light than todays decision from the BoE on future moves. Sterling has held firm after making gains yesterday against the USD and the JPY; Sterling was boosted by improvements in consumer confidence and PMI data and the austerity measures announced by Greece. The 1.50 rate on GBP/USD is still the psychological that the pound needs to hold above and build on. Read the rest of this entry »

Not much movement overall yesterday on Sterling as the markets paused on selling the pound. This morning we have in fact made some gains back and as we stand we are holding just above the key 1.10 level and 1.50 on GBP/USD. The 1.50 level on GBP/USD is a crucial level to hold above and will help to steady the ship and prevent further selling pressure. This morning we have seen UK PMI data come in much stronger than expected rising to 58.40 compared to the 55 expected and giving the best reading for over 3 years. On top of this consumer confidence rose to 80 and a 2 year high as consumers look ahead to a brighter 2010 for the UK economy. The good data this morning was a huge breath of fresh air for sterling giving it a welcome break from the selling momentum. Read the rest of this entry »

After being sold aggressively across the markets yesterday the markets have taken a breather and we now await the next move. First let us dissect why the drop in sterling which fell over 2% against the USD pushing it to a 10 month low. Well the focus is political with the opinion polls over the weekend indicating that the chances of a hung parliament were much higher- so why does this cause a problem? A hung parliament may actually prove successful, however the markets do not like uncertainty and the consensus is that a coalition government will have less political clout to push through the decisive decisions especially in relation to tough fiscal planning which is inevitable.
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Disastrous start for the pound in the FX markets continuing the bearish trend witnessed last week. The pound has dropped to a near 3 month low against the euro, a 10 month low against the USD and a near year low against the JPY. The UK is under heavy selling pressure with unwanted attention and unease with the fiscal deficit combined with further indications that the general election will result in a hung parliament. A hung parliament would severely limit the ability of a divided parliament to act decisively on the UK’s deficit spelling danger for sterling. In addition to this the potential purchase of the Asian life insurance unit of AIG from Prudential is causing large negative M&A flows out of sterling and into the USD.  So all in all not a bright picture for the pound which is looking alarmingly fragile and dropping sharply.
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Let us start with the good news from the UK economy before we dive into the bad and the ugly. UK CBI distributive trades showed a good rise in the number of retailers expecting an increase in sales- the number was up from -8 to +23. John Lewis says weekly department sales up 15.1% so good feedback there. UK GDP revision for the fourth quarter came in at 0.3% and upward revision from 0.1%- better than expected- so why has the pound dropped further?

I was bemused on the fall in the pound following the upward revision- I can only attribute it to speculators thinking the data would be stronger than 0.3% and buying the rumour and then selling the fact. Sterling has had a mini run lower over the last week falling 3% against the euro, 2% against the USD and 4% on the Yen. Mixed economic data will not be helping- particularly UK investment data which was appalling, dropping 5.8% in the last quarter to leave the year on year figure down a whopping 24.1%. In addition Nationwide house price data came in weaker than expected at -1.0% much weaker than the forecasted +0.4%.
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This was definitely not a surprise but the markets appreciated the affirmation from the Fed which removes any potential near term surprises from the Fed. Equities picked up on the news but risk appetitie is far from returning. Europe came back to the fore and this morning the markets are in a tailspin of fear again as the threat of a sovereign downgrade looms over Greece. This opens up th epossibilty of Grrek bonds being illegible with the ECB, making it more difficult to borrow.
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